Disadvantages of Smart Contracts

One of the most significant downsides to the decentralised Smart Contract model is that they will automatically execute whatever logic is coded into them. Given Smart Contract code is developed by humans who are prone to error, this frequently includes unintended vulnerabilities. 

Code vulnerabilities are made worse by the common practice of copying Smart Contracts wholesale, including any broken logic.

DEFI became one of the biggest sources of crypto scams in 2021 with Chainalysis estimating that $2.3bn was stolen from DEFI protocols. The increasing complexity of Smart Contracts and the interoperability of so many DEFI protocols will likely cause these vulnerabilities to increase exponentially.

Rival Smart Contract Blockchains

Ethereum was the first blockchain to introduce the concept of Smart Contracts, but there are now many rivals with their own scripting languages and chains built purposely to be EVM compatible.

The main reason for the rise of so-called Ethereum challengers isn’t any specific failure of Smart Contracts; rather the opposite, Ethereum has become a victim of its own success.

Smart Contracts are so efficient and have opened so many opportunities that the capacity of the Ethereum blockchain to commit the state changes to new blocks cannot keep up. This has seen the price of Smart Contract transactions (the amount of GAS required) rise sharply, pricing many users out of the market.

Rivals to Ethereum such as Solana, Polkadot, Cardano and Avalanche have developed their own Smart Contract languages and different Consensus Mechanisms with faster block confirmation times to accommodate significantly more transactions at a fraction of the cost. Unfortunately, their solutions generally offer scalability by compromising decentralisation or security. 

Satisfying all those elements is what is known as the blockchain trilemma. Ethereum’s upcoming Merge and move to Proof of Stake is intended to address this, along with new approaches to processing transactions off-chain (using Rollups) then batching them to the main Ethereum chain to record the state change.